Wesley Patterson, 27, a diesel mechanic, works on a methane digester dairy farm in California's Central Valley. The project was paid for with federal government grants and powers the 4,000 cow dairy. It also brings in money from carbon-offset credits every year.

Wesley Patterson, 27, a diesel mechanic, works on a methane digester dairy farm in California's Central Valley. The project was paid for with federal government grants and powers the 4,000 cow dairy. It also brings in money from carbon-offset credits every year. (Joshua Emerson Smith / San Diego Union-Tribune)

On a dairy farm in California’s Central Valley, Wesley Patterson squinted under a dusty baseball cap as he explained, over the roar of its natural gas-burning engine, the advantages of installing a methane digester.

He pointed to several football-field-sized ponds of cow manure covered in industrial-strength tarps. The methane coming off the animal waste is trapped, he said, and sucked into a generator that creates more than enough power to run the 4,000-cow operation.

“It’s basically like solar, but we make power all the time, and we don’t have to use five acres of land for panels,” said the 27-year-old diesel mechanic. “Saving money is making money.”

The project also generates revenue by selling carbon-offset credits through California’s cap-and-trade program — part of the state’s ambitious plan to reign in greenhouse gases.

Under the offset program, everyone from dairy farmers trapping methane to timber companies embracing progressivelogging practices to nonprofits preserving natural landscapes can sell carbon credits and get paid for their efforts to fight climate change.

Industrial polluters purchase those carbon credits to claim the ton-for-ton reductions in climate-warming emissions as their own. They use the offsets to stay in line with the state’s strict environmental regulations, or voluntarily, to green up their public personas.

However, reportingby the San Diego Union-Tribune has revealed numerous instances where companies and nonprofits selling offsets didn’t shrink their carbon footprint as a result of the program— raising questions about the ability of the program to fight climate change.

Joshua Emerson Smith / San Diego Union-Tribune

Cows at the GJ Te Velde Ranch dairy farm in Tipton, California. Manure from the 4,000-cow diary farm emits methane that is trapped and used to run a generator.

Cows at the GJ Te Velde Ranch dairy farm in Tipton, California. Manure from the 4,000-cow diary farm emits methane that is trapped and used to run a generator. (Joshua Emerson Smith / San Diego Union-Tribune)

In some situations, groups maintained green business practices that long preceded the offset program, but qualified to sell credits by pledging to continue those activities for decades to come. In other cases, companies received checks for reducing their emissions but were largely motivated to green up their operations by other financial factors.

“It’s worked out pretty good for us,” said Greg te Velde, a dairy farmer outside of Tulare who has been collecting money from carbon offsets for a digester he installed two years ago. “It really was a no brainer.”

Half of the roughly $2.5 million startup cost for the project was covered by a U.S. Department of Agriculture grant, he said. The annual savings on electricity has made the investment worthwhile, he said, while the carbon credits pad revenue with an additional $200,000 a year.

It’s worked out pretty good for us. It really was a no brainer.— Greg te Velde, a dairy farmer outside of Tulare

And this diary farmer is no outlier. The contractor who installed the digester, Daryl Maas, owner of Maas Energy Works, said that carbon credits are often an afterthought when deciding whether to invest in the alternate power source.

“The carbon credits are a very nice bonus, but the bulk of what we do is power generation,” Maas said.

Proponents of the credits, including the California Air Resources Board, acknowledged the situation in several recent interviews with the Union-Tribune, saying that the current approach does reward some businesses regardless of their underlying motives. But given enough time, they argued, the carbon credit program has the potential to shift industry-wide practices.

“If you can show that you’re doing these activities as of these dates forward, you are eligible to get offset credits,” said Rajinder Sahota, a top official with state air board.

“It’s not about what would’ve happened in one project,” she added. “It’s really how much more can we expand (these practices) to other regions.”

California’s cap-and-trade program kick starts carbon offset market

Following California’s 2006 landmark climate change legislation Assembly Bill 32, which mandated a reduction in greenhouse gases to 1990 levels by 2020, the air board developed the state’s cap-and-trade program.

Under the program, regulated businesses must buy permits, often called allowances, for each ton of greenhouse gas they emit. For example, an oil refinery that emits a million tons of greenhouse gas would be required to purchase a million allowances.

The Standard Oil Refinery in El Segundo, California is one of many businesses regulated under the state's cap-and-trade program. Los Angeles International Airport is in the background and the El Porto neighborhood of Manhattan Beach in the foreground.

The Standard Oil Refinery in El Segundo, California is one of many businesses regulated under the state's cap-and-trade program. Los Angeles International Airport is in the background and the El Porto neighborhood of Manhattan Beach in the foreground.

The state’s program is designed to ratchet down over time the total number of allowances available, thus capping emissions at ever-lower levels. Regulated industries — including refineries, investor-owned electric utilities, natural gas producers and other heavy emitters — represent 80 percent of the state’s greenhouse-gas emissions.

Money collected by the state from the cap-and-trade program is required to be spent on projects intended to reduce greenhouse gases, from rebates for electric vehicles to fire prevention to Gov. Jerry Brown’s high-speed-rail project.

As part of the cap-and-trade program, regulators allow businesses to purchase carbon offsets — in lieu of allowances — for up to 8 percent of their total emissions.

Officials said that carbon offsets are intended to limit the program’s financial burden on industry and prevent economic shock waves from rippling through the economy. Offsets sell today for roughly $10 a ton, while allowances go for around $15 a ton and are expected to become more costly as the state ratchets down the cap.

Rather than set up its own carbon-offset marketplace, the state facilitated the development of a nonprofit registry, originally called the California Climate Action Registry.

Today, it’s known as the Climate Action Reserve, and it’s one of a handful of registries that act as online storefronts connecting buyers and sellers of offset credits.

“The main reason for offsets is to lower that cost of the (cap-and-trade) program,” said Craig Ebert, president of the Climate Action Reserve. “It’s a price safety valve.

“Companies like an electric utility can pass along a lot of those costs to the customers, and we don’t want electric bills to skyrocket in the state,” Ebert added. “So offsets help minimize that pressure. It’s cost containment.”

At the same time the carbon registries also spawned a voluntary market aimed at businesses and individuals looking to reduce their carbon footprints. Companies such as Microsoft, Coca-Cola and UPS have embraced carbon offsets, along with other investments, as a way to green up their corporate images.

Concerns have been simmering

Some environmental groups have long criticized the carbon offset program and raised concerns about its ability to effectively limit greenhouse gases.

Several years ago, the San Diego-based Citizens Climate Lobby tried to overturn the state’s offset program in court, arguing the credits were providing “windfall gains” for participating businesses without achieving meaningful reductions.

However, the courts disagreed, leaving the program fully intact and green groups frustrated.

“What we are seeing is that a substantial part of the activities that are going into the offset credits are projects that would have happened anyway,” said Brian Nowicki, the Center for Biological Diversity’s climate policy director in California.

“That doesn’t mean these are bad projects,” he added, “but it does mean that these projects don’t balance out against the smokestack emissions they’re supposed to offset.”

Save the Redwoods League — a California-based nonprofit that has protected more than 200,000 acres of land in the last 100 years — recently realized that its activities could qualify to sell carbon offsets. It has now started the process of collecting offset payments for its work on 2,800 acres of forest land along the north coast.

“We have not had to change our practices to qualify,” said Paul Ringgold, chief program officer for Save the Redwoods League. “But we have to show proof that we’re a solvent organization.”

If everything goes as planned, Ringgold said the nonprofit could receive an initial payment of about $3.3 million and then $80,000 a year thereafter in carbon offset credits.

We have not had to change our practices to qualify.— Paul Ringgold, chief program officer for Save the Redwoods League.

In exchange, the group will be required to preserve the credited redwood forests for the next century. It will also have to hire an environmental consultant to track the carbon stored in trees and then get those results verified by a third party.

Ringgold said while the money didn’t directly motivate the Save the Redwoods League to act, it does help expand its mission.

San Diego County home to one of the first voluntary carbon offset projects

Environmental scientist Lisa Gonzales-Kramer surveyed the Cuyamaca Rancho State Park in San Diego County from her government-issued 4x4 pickup truck on a hot afternoon in September. The massive vehicle crawled over a rocky dirt road, as she stared at the skeletons of scorched pine and oak trees ravaged in the state’s historic 2003 Cedar Fire.

Gonzales-Kramer has for the last eight years overseen efforts to rehabilitate the park’s forest habitat, thanks to about $6.7 million in carbon credits from the voluntary offset market.

“We knew this forest wouldn’t recover in our lifetime,” she said, “and we couldn’t have coughed up money to do this reforestation project without that carbon source of funding.”

Howard Lipin / San Diego Union-Tribune

Lisa Gonzalez-Kramer, Cuyamaca Rancho State Park Reforestation Project manager, amongst trees burned in the 2003 Cedar Fire, and new pine trees planted as the result of money from carbon-offset credits.

Lisa Gonzalez-Kramer, Cuyamaca Rancho State Park Reforestation Project manager, amongst trees burned in the 2003 Cedar Fire, and new pine trees planted as the result of money from carbon-offset credits. (Howard Lipin / San Diego Union-Tribune)

Down the road, a half-dozen workers in yellow safety vests slashed away at brush using chainsaws and hand tools to create a perimeter around a 100-acre plot of land scheduled for burning and replanting. She explained that the greenhouse-gas emissions from the prescribed burn, as well as from the removed vegetation will be subtracted from the total carbon credits claimed by the project.

While some environmentalists have criticized the use of such credits as a cynical pay-to-pollute scheme, Gonzales-Kramer strongly disagreed. Every year, she said she purchases offsets not only for herself but that of her husband and two college-aged sons.

She said the rigorous process of listing the Cuyamaca Rancho State Park reforestation project with a carbon registry has cemented her faith in the system.

“I know how hard it is to get verified,” said the 56-year-old vegan and lifelong conservationist. “It’s strict, and it should be. That’s what makes me confident that what I buy is going to meet the edge of what I haven’t been able to offset myself.”

However, the endeavor at Cuyamaca Rancho State Park is different from nearly all other carbon-offset projects in one significant way.

The money for the project was paid upfront, in large part as a deal between government officials in Sacramento and businesses that wanted to help boost the fledgling carbon-credit industry in the state.

As a result, there was little question as to whether the reforestation project would have occurred without the cash for the offset credits, which were purchased by Disney, ConocoPhillips and Poseidon Resources.

Greening up suburban sprawl with offsets

Developers have increasingly seen the voluntary carbon offset market as a way to help satisfy the somewhat murky environmental rules around building sprawling new housing projects in California.

The San Diego County Board of Supervisors is now looking to use the voluntary carbon market in a first-of-its-kind program to cancel out new greenhouse-gas emissions from thousands of housing units proposed far from urban job centers.

This year alone, elected officials in the county are set to approve 10,000 new housing units that would allow developers to purchase carbon credits to offset roughly 77 percent of new emissions, almost entirely from new car trips.

“We feel real comfortable that we’re getting greenhouse gas benefits that in some cases would have never gotten, and in others that we were unlikely to get,” County Supervisor Ron Roberts said of the carbon offset market.

“Don’t lose sight of the fact that we’re trying to influence others to adopt systems that don’t destroy the economy but reduce emissions in a major way,” added Roberts, who has served on the air board since 1995.

John Gibbins / San Diego Union-Tribune

The proposed site for the Newland Sierra development project in the Twin Oaks area north of Escondido, which would create 2,135 new residential units. The project developer plans to use carbon credits to offset new emissions from increased traffic.

The proposed site for the Newland Sierra development project in the Twin Oaks area north of Escondido, which would create 2,135 new residential units. The project developer plans to use carbon credits to offset new emissions from increased traffic. (John Gibbins / San Diego Union-Tribune)

The Sierra Club and others have challenged the county’s proposed offset program in court. They argue it violates the county’s Climate Action Plan, a regional blueprint for reducing greenhouse gases that calls for emission reductions to occur locally. A San Diego Superior Court judge is expected to rule on the issue by early 2019.

If the county’s vision eventually clears all legal hurdles, developers will be able to purchase offset credits for a wide variety of projects anywhere in the world, from efforts to limit deforestation in the Amazon to preservation of grasslands in the western United States.

That money could help benefit the mission of folks such as Nicole Rosmarino, executive director with the Southern Plains Land Trust. She said her group has qualified for offset credits to protect grasslands in southeastern Colorado through the voluntary offset market.

Rosmarino said in a recent interview that at least one of the trust’s offset projects was placed under protection prior to the application for credits. But she defended the program, saying she believes her efforts could inspire other landowners who wouldn’t otherwise be engaged in preservation.

“We wanted to show that conservation pays, and provide an example to our rancher neighbors,” she said. “If they see that conserving the land is going to be economically viable that could inspire a ripple effect.”

Europe’s troubled carbon offset market informs California’s approach

Concerns that offset projects don’t measurably reduce greenhouse-gas emissions date back to the United Nation’s Clean Development Mechanism, which grew out of the 1997 Kyoto summit.

Under the mechanism, polluting companies in Europe paid for credits generated by projects in developing nations, such as distributing efficient cook stoves in India and preserving rain forests in Brazil.

There was significant concern in the run-up to the launch of the offset market that money could go to pay for efforts that would’ve happened regardless of the new program. As a result, each project underwent an audit to determine whether it was financially feasible without the offset payments.

However, the offset program was plagued by scandal, with companies in China and India generating excessive greenhouse gases so they could get paid to destroy them, land grabs in Africa and outright falsification of documents.

California designed its offset program in direct response to the failures of the European model. Instead of a financial test to determine the legitimacy of offset credits, the state developed emissions standards, also known as protocols, for different types of activities.

A logging company, for example, can qualify to sell offset credits if it holds more carbon in its forests than a regional average, determined by a formula in state’s forest-management protocol.

“If the baseline is the table, and our emissions are here,” said Edward Murphy holding his hand a foot over a picnic table outside the headquarters of Sierra Pacific Industries in Redding, California, “we claim the difference.”

The logging company is the largest landholder in California, owning 1.7 million acres from west of Yosemite National Park north to the Trinity Alps. Within the next five years, the company plans to enroll more than half the land it owns in the carbon offset market.

So far, Sierra Pacific has issued credits for improved forest management on roughly 29,000 acres. Instead of growing their forests densely and harvesting aggressively, they leave more space between trees, growing a larger, thicker stock.

To sell offset credits the company has to agree to maintain its forest in this way for at least the next 100 years.

However, the timber company has been logging this way for nearly two decades — years before the carbon-offset market came into being.

Murphy, environmental services manager for Sierra Pacific, drafted the sustainable yield plan in 1999, not to qualify for credits but to boost long-term profits. He has calculated that over the next century the approach will more than double production.

“We spend money to grow the wood bigger, more well spaced and faster,” he said. “Our objective in the long run is to increase total carbon stocking in the forest, and to increase harvest level. I’m mean, we’re in the business of growing and harvesting trees.”